Shareholder Activism and Changes in Audit Committee Composition

62 Pages Posted: 9 Sep 2018 Last revised: 7 Dec 2018

See all articles by Tom Adams

Tom Adams

University of Connecticut

Thaddeus Neururer

University of Akron - The George W. Daverio School of Accountancy

Date Written: October 11, 2018

Abstract

We examine whether governance related shareholder activism is associated with changes in audit committee composition. Audit committees are the “ultimate monitors” of firms’ financial reporting processes. The SEC is interested in whether audit committees have financial experts and prior research has documented benefits associated with accounting-specific financial expertise. Governance activism expresses investors’ dissatisfaction with corporate governance; audit committees are an important corporate governance mechanism. Therefore, we predict that governance activism is one, and as of yet unexplored, factor affecting audit committee composition. We document a positive association between governance activism – and specifically, accounting, audit, and financial reporting related governance activism – and increases in audit committee accounting-specific financial expertise. This association is strongest when a firm concurrently announces a restatement, experiences an internal control failure, or has low pre-activism expertise. We contribute to the literature by documenting an important determinant of audit committee composition.

Keywords: Shareholder Activism, Audit Committee, Corporate Governance

JEL Classification: G30, M41

Suggested Citation

Adams, Thomas and Neururer, Thaddeus, Shareholder Activism and Changes in Audit Committee Composition (October 11, 2018). University of Connecticut School of Business Research Paper No. 18-25. Available at SSRN: https://ssrn.com/abstract=3239994 or http://dx.doi.org/10.2139/ssrn.3239994

Thomas Adams (Contact Author)

University of Connecticut ( email )

School of Business
Storrs, CT 06269-2041
United States

Thaddeus Neururer

University of Akron - The George W. Daverio School of Accountancy ( email )

United States

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